The Journal of Economic Dynamics and Control.pdf

Evolved Perception and Behaviour in Oligopolies Robert Marks, Australian Graduate School of Management, University of New South Wales, Sydney NSW 2052, Australia To appear in The Journal of Economic Dynamics and Control Presented at Computing in Economics and Finance, Geneva, 26–28 June, 1996. Revised: May 23, 1997. Please do not quote without the author’s agreement. Correspondence to Associate Professor Robert Marks, Australian Graduate School of Management, University of New South Wales, Sydney, NSW 2052, Australia; E-mail: bobm@agsm.unsw.edu.au ABSTRACT: This paper builds on earlier studies which examined oligopolists in a repeated interaction as responding simply to past prices of their strategic rivals, and which used data from a mature market, with stable rules of thumb (mappings from past actions, or states of the market, to present prices) for the oligopolists’ behaviour, whether purposefully learnt or emerging from the natural selection of the rivalry. The earlier studies imposed exogenous partitions on the action space, as perceived by the players. This study explores how such perceptions might be endogenised. A firm answer to the question of how oligopolists partition their perceptions of others’ actions, both through time and across the price space, will also provide information on how much or how little information they choose to use: in short, how boundedly rational the oligopolists have chosen to be. We use data from a retail coffee market to examine the evolved optimal partitioning and mapping of price sp